This paper focuses on speed and current sensor fault detection and isolation (FDI) for induction motor (IM) drives. A new, accurate and high-efficiency FDI approach is proposed so that a system can continue operating with good performance even in the presence of speed sensor faults, current sensor faults or both. The proposed three paralleled adaptive observers are capable of current sensor fault detection and localization. By using observers, the rotor flux and rotor speed can be estimated which allows the system to run under the speed sensorless vector control mode when a speed sensor fault occurs. In order to detect speed sensor faults, a threshold-based scheme is proposed. To verify the feasibility and effectiveness of the proposed FDI strategy, experiments are carried out under different conditions based on a dSPACE DS1104 induction motor drive platform.